By Ben Levisohn

Cliff’s Natural Resources (CLF) is the biggest loser in the S&P 500 this morning after Morgan Stanley explained its bear case for the iron-miner in a report released today.

REUTERS

Why the bearish call? Analyst Evan Kurtz and team lock in on three factors: Supply, costs and weaker pricing.

1. Great Lakes supply. Historically, Cliffs has enjoyed near monopoly pricing power in the isolated Great Lakes iron ore market. We expect that will end as 10mn tons of new capacity hits the market…

2. Cost control issues. Cliffs is facing operational challenges at several of its operations. In particular, we think it will continue to struggle with costs at its aging Koolyanobbing and Wabush mines.

3. Weaker seaborne iron ore pricing. Major projects from Fortescue and Rio Tinto start up at the end of this year, which could pressure pricing in 2014. Our commodities team forecasts a $117/t average in 2014, versus today’s spot price of $138/t.

The bearish call comes as Cliff’s has gained 14 % this month, making it the second-best performing stock in the S&P 500 in August, trailing only Tyson Foods (TSN). Analysts have attributed less-pessimistic sentiment towards China for the big move.

Cfiffs has dropped 3.1% to 22.13 today at 10:01 a.m., far more than larger mining stocks. BHP Billiton (BHP) has fallen 0.5% to $67.21 and Rio Tinto (RIO) is off 0.9% to $47.95.

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There are 4 comments

AUGUST 19, 2013 10:36 A.M.

Ralph Miller wrote:

Morgan Stanley??? I would not listen to Morgan Stanley!!! Do your own research...

AUGUST 19, 2013 11:38 A.M.

Stanley Morgan wrote:

If you believe anything that comes out of these analysts say then you deserve to miss the boat.

AUGUST 19, 2013 1:53 P.M.

VIPIN M.KOTHARI wrote:

Ben L is NOT making any sense really. In the Q-3,13 the iron Ore price will average $ $135-$145 and at this price CLF's Q-3 earnings will explode beating the est of $0.55 handily. Some how this stock JUST doesn't get any respect. Besiders their cash position has improved substantially in 2013 because of issuing more shares and cutting cost and better earnings performance. This stock was once $102 and it is worth at least $30 at the current level because of Iron Ore pricing and improving economy globally.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.